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Treasuries Still Not Cracking

Tyler Durden pointed out yesterday that just three weeks after Goldman made the case for equities relative to bonds, the muppets who had listened to their advice were getting skewered:

I wrote a while back that (unlike some others) I didn’t believe it was likely that this was going to be a cataclysmic rate spike. Readers who want to detect one need to watch whether sovereign creditors especially Russia and China are selling, and at what pace — the faster the liquidation, the more rates may spike.

Of course, I am still convinced that the real fragility to America’s economy isn’t actually a rate spike or inflation.The Fed has a very good handle on both of these things (but not, perhaps on unwanted side effects. They can effectively do QE without really inflating the currency much; simply shoot the money to primary dealers for treasuries.

When volatility is artificially suppressed, there are always unwanted side effects. And that — the unwanted side effects, not the widely-reported fears of inflation and rate spikes — I believe, is the true danger.

One unwanted side effect could be provoking a damaging trade war with China, from which the West imports so much. That is my pet theory, and one I’ve devoted a few thousand words to over the last few months. But the trouble with side-effects is that it is very hard to tell what the weakest link (i.e. the point that will break) in a volatility-suppressed system is. Tyler Durden reports that systemic financial fragility (as measured by CDS) is at a recent-high, too:

I don’t know when the black swans will come home to roost and the strange creature that we call the present global economic order will go ka-put. I don’t even know if they ever will! But I see the fragilities caused by central planners suppressing the system’s natural volatility.

I had about 10 times as many readers as I’ve ever had before in the last month thanks to one man: Tyler Durden.

In a some areas (algo trading is the one that mostly springs to mind, but also, bond market, FX) he is the best or one of the best on the planet.

I know my limitations. I study systemic fragility, which means I have to take a general overview. There are many smaller topics where I am comparatively stupid, and I highly recommend Tyler’s work on some of those topics.

So, if China has to raise the prices on exports, would that be good or bad for the US economy?

I think Aziz, has hit the nail square on the head with his views on China, it is better to be the producer, then the consumer! Pricing power and stuff. Please see the rare earth metals space for a quick glimpse into the potential of China’s future pricing power.

Your little shirt is totally insignificant. It made in China yesterday but it’ll be made in the U.S or Mexico tomorrow. The U.S totally won’t be necessary to depend on China for import goods. Never overlook the power of pricing. If China raise prices then goods will be made in the U.S again.

Intuitively I want to agree with fo sho. Whether or not it’s China we are dependent upon for goods, the point is that we are very dependent upon other nations for cheap goods. Manufacturers and producers will go where they can cut costs to meet consumer demand.

Ha! But China is banned from any access to the Western advanced weapon technologies. They can’t buy them! That’s why they have to steal. Or else China must make its own. They are just doing that. However the unrest inside China is CCP’s priority for now and sometime to come. They spend much more on their internal police security force what is aiming at it’s own people than they spend on building up the military. Right now the power in China has their hands full of internal problems.

I don’t believe China will ever go to war with the U.S at any rate unless U.S bomb China. Most Chinese like the U.S and the Americans. Just see how many highest rank Chinese government officals have families carrying th U.S green cards or have the U.S citizenship. See how many the richest Chinese immigrated to the U.S and living in the U.S. The U.S has many Ace cards on it’s hand. Taiwan for example is one. When the worst come the worst, U.S can sell out Taiwan to exchange debt forgiveness. The unification of China is the trend which will happen in the next 10 or 20 years time. I believe for sure it’ll happen before the unification of N. and S Korea because once the Koreans is become one, Taiwan won’t have any chance to survive. China will have a ferrous competitor. The Koreans are a very ferrous race. The ultimate redneck of Southeast Asia. Might be has something to do with their diet. (lol)